Concern about the impact of slowing Asian sales on corporate profits spurred a 6 per cent decline in the Dow Jones in October and caused a one-week 7 per cent slide in January. The US market rebounded to set records, spurred by a rally in computer-related shares and optimism that interest rates will stay low.
"It's steady as she goes," said Ed Miska, a money manager at Evergreen Asset Management. "Earnings pretty much came through on target or a little better than expected, and I don't see any corporate news that should upset the market."
The Dow industrials rose 0.5 per cent last week. The 30-stock average set a record 8,451.06 on Wednesday, extending its gain for the year to 6.3 per cent. The Standard & Poor's 500 Index jumped 1.3 per cent for the week, and also set an all- time high on Wednesday.
The Nasdaq Composite Index, packed with computer, semiconductor and software companies, climbed 1 per cent.
Increasing tensions in the Middle East are one potential source of concern for investors. "There's a lot of controversy about what we should be doing there," said David Nelson, a money manager at Investment Counselors of Maryland. "It's become somewhat problematic."
Mr Nelson's current favourites include oil-drilling and services companies such as Tidewater, Diamond Offshore Drilling and Global Marine. Tidewater's stock is down 24 per cent and both Diamond and Global Marine are off 7 per cent this year, hurt partly by an 18 per cent drop in the price of crude oil.
The drop in oil prices has contributed to low inflation in the US, and stock investors said that trend will probably remain in place. Meagre inflation gives bondholders confidence that the returns on their fixed- income holdings won't erode, and they are willing to accept lower interest rates as compensation for less risk.
US bonds fell for three days last week as traders found little incentive to buy Treasury securities before Federal Reserve Chairman Alan Greenspan speaks to Congress this week on the state of the economy.
"Everyone is waiting for Greenspan," said Susan Huang, at Chase Asset Management, who sees 30-year bond yields falling to 5.5 per cent this year.
Michael Weiner, a money manager at Banc One Investment Advisors in Ohio, said the market's rally may be running on empty. He predicts the Dow industrials will trade in a range this year from 8,500 on the high side to 6,800 at the low end.
Copyright: IOS & Bloomberg